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The US: Network TV joins the digital age

US network television is suffering as marketers move their budgets into cable and new media. Ann Cooper reveals how digital is changing the broadcasting landscape.

The US ad industry's chances of achieving the 4-6 per cent growth in
adspend projected for 2005 depend on one thing: hurricane damage. The
cost of clearing up after Katrina and Rita has now reached billions of
dollars. Rising fuel costs and falling consumer confidence have sparked
questions about inflation and the stability of the US economy.

Media executives are concerned that some advertisers will cut their
budgets in the coming months. While no-one expects this to have an
immediate impact on adspend, the bigger picture is less clear. Many
think rising oil prices will increase manufacturing and delivery costs,
with money moving from marketing as a consequence.

But until the beginning of September, the economy, buoyed by such
factors as a robust housing market, consumer spending and business
investment, was on track to achieve the growth rates forecast by that
most upbeat of all the predictors, Universal McCann's director of
forecasting, Robert Coen. The positive trend looked set to continue with
similar growth rates in 2006.

It comes as no surprise that internet advertising is growing at the
fastest rate, posting double-digit increases. Revenue for the second
quarter of 2005 totalled almost $3 billion, a 26 per cent
increase over the previous year.

A study from Jupiter Research predicts online adspend will more than
double to $19 billion by 2010.

The growth predictions for newspapers, magazines and radio all dropped
slightly, while cinema and outdoor remain flat.

Cable TV is a winner, up 12 per cent in 2005, according to Coen. One
week into the new season at the end of September, cable had improved its
share to 54.3 per cent against the main broadcast networks' 45 per
cent.

Viewers are now seeing cable networks as branded or destination portals,
according to Ira Sussman, the vice-president of research for the Cable
Television Advertising Bureau. He says much of the growth is coming from
the smaller networks.

Coen believes the major broadcast networks will be up 2 per cent for the
year, while local TV will be down 5 per cent to $10.8 billion.
Not surprisingly, it is the future of network TV that is raising the
most concerns, with this year's upfront buying market putting in a
lacklustre performance. It came in at $9 billion, $100
million-$200 million less than last year. The reasons for this
are clear. Many of the biggest advertisers, such as Procter & Gamble and
General Motors, are moving chunks of their ad budgets away from
mainstream media, particularly television. This is a result of
fragmenting audiences, measurement problems and increased competition
from new and emerging media.

So what are the mainstream media doing about it, apart from
panicking?

NBC, suffering from a lack of hit shows, plummeting ratings, declining
audiences and a fiscal downturn, is facing a projected loss of nearly
$1 billion in advertising revenue. This prompted its president,
Jeff Zucker, to implement cost-cutting measures affecting everything
from travel expenses to the snacks served at meetings.

Other networks are responding more positively by airing their shows in
non-traditional ways. CBS, UPN, Warner Brothers and Fox have plans to
offer programmes on cable and satellite, on-demand platforms, the web
and podcasts. Time Warner's HBO made the first three episodes of its
historical drama Rome available to non-subscribers on national
video-on-demand platforms. And consumers buying videos at the retailer
Best Buy received a free DVD of the series. Then, in September, WB
announced plans to link up with Yahoo! to launch its popular
Supernatural drama series online.

However, the TV networks have generally been slow to embrace the online
phenomenon and are trying to catch up. Several networks bought online
search terms from Yahoo! and Google recently to direct surfers to their
own websites, where they can watch autumn season previews. "Our guys
have always sought out the cool hunters," Peter Liguori, the president
of entertainment at Fox Broadcasting, says. For example, a sponsored
Prison Break link on Google leads web users to www.fox.com/prisonbreak,
a promotional site for the autumn series.

Another glimmer of good news is the coming together of TV and the net to
develop technologies such as internet protocol TV - or IPTV - which is
being heralded as the saviour of advertising. The technology marries TV
to the internet, transforming shows and commercials into digital files.
This makes TV a two-way experience that enables viewers to chat on their
screens or use their phones to programme their DVRs remotely. The
technology can deliver just the content consumers want, when they want
it, rather than broadcasting shows to millions of homes needlessly.

IPTV can also serve up ads that are tailored to users' preferences and
viewing habits - a godsend for marketers wanting to target specific
consumers.

Early versions are already in homes and David Verklin, the chief
executive of Carat North America, predicts such technologies will
attract advertisers that cannot afford TV.

There are other pockets of optimism on the TV horizon, too. Although
demand for traditional ads on network TV has flattened this year, some
advertisers cannot seem to get enough of certain types of ads:
direct-response commercials, for example. According to figures from TNS
Media Intelligence, spending on DRTV ads was up 25 per cent through the
first five months of the year to $1.2 billion.

Another enormously successful area is product placement or branded
entertainment, which jumped 30.5 per cent to $3.5 billion in
2004. From 1999 to 2004, product placement in TV, film and media grew at
a compound annual rate of 16.3 per cent. PQ Media predicts the growth in
media product placement will continue to 2009, reaching $7
billion.

Critics argue that product placement is becoming so ubiquitous that
series such as The Apprentice are becoming infomercials. Paul
Woolmington, the head of The Media Kitchen in New York, says: "Product
placement is incremental as opposed to fundamental, and it's the latter
the TV companies should be looking for. It's like turning the clock back
to the 50s. But consumers will be the final judge."

Magazines, meanwhile, have borne the brunt of the migration of ad
dollars to new media. They have been accused of lacking research
measurement, return on investment and reader engagement, and have been
criticised for their long lead times and a spate of circulation
scandals.

In response, publishers such as Conde Nast and the Meredith Group have
been running extensive ad campaigns, and there has also been an
initiative from the Magazine Publishers of America. In addition, almost
all the main consumer and business groups are launching aggressive
integrated marketing efforts offering options beyond the printed
page.

The internet is being harnessed as never before, with many magazines now
offering digital editions, podcasting and blogs. Promotional events,
such as Vogue's Fashion Rocks, a televised star-studded extravaganza at
New York's Radio City Music Hall, are another way to keep readers
engaged with magazine brands.

But market fragmentation is opening opportunities for research. Steve
Farella, the president of the media shop TargetCast tcm, says:
"Consumers are avoiding commercials so we did research to find out when
they actually want to be reached - because we know people like some
advertising. So while technology caused the fragmentation problems
initially, it is now allowing media agencies to take charge and put our
recommendations in a data-based and believable form.

"Part of the modern media shop's brief is accountability, and the kind
of work we are doing is blowing holes in a lot of established
beliefs."

But whatever the main media owners are doing, it is not enough for some
in the industry. Woolmington, for example, believes marketing is
becoming increasingly important. "In the old days, you put it out there
and people came," he says. "Big media companies have been slow to react
and they are now waking up in a cold sweat."

He cites ESPN as an example of a media company that gets it right. "ESPN
realised the key to success was to move from being a broadcaster to a
marketer, so the vernacular is to move from audience to consumers,"
Woolmington explains. "ESPN understands that it is competing with
consumer leisure time, not sports coverage on TV. So it bashed together
all its sales and marketing units to empower everyone to work across all
forms of distribution.

This obviously means TV but also spans magazines, wireless, the internet
and radio."

The state of the US market is forcing marketers and their ad agencies to
become more creative. It is no longer enough to devise a single
30-second TV commercial to run for weeks on end. But the good news is
that initiatives such as IPTV could pump more dollars into the ad
business, with some marketers prepared to pay a premium for advertising
that is certain to reach its intended audience.

THE US AT A GLANCE
NOW
ECONOMY America's service sector took a hammering
from Hurricane Katrina, but the need to
rebuild the Gulf Coast has helped the
construction industry. The cost of the clear-
up and rising oil prices are a big concern.
ADVERTISING
MARKET Elections pumped $1.5 billion into local
television alone last year and the market
weighed in at $155 billion, according
to Initiative.
COUNTRY AD America's advertising market is bigger than
COMPARISONS the 18 next largest countries' added together.
It is four times bigger than the number two
market, Japan.
TELEVISION Cable TV is expected to grow by 12 per cent
this year, with broadcast up 2 per cent and
local TV down 5 per cent. The upfront
buying market is down $200 million on last
year. Personal video recorders, such as TiVo,
were in 7 per cent of US homes in 2004.
INTERNET The web is America's fastest-growing medium,
up 30 per cent on last year, with search
marketing the major driver.
POLITICS America is increasingly divided on issues of
AND MEDIA religion, politics and sex in the media.
The debate on violence and indecency on
television is heating up.
WHAT TO EXPECT
ECONOMY A robust housing market, consumer spending
and solid business investment are expected to
help GDP rise by 3.5 per cent this year. But that
figure could drop, depending on the price of oil,
further hurricanes and terrorism.
ADVERTISING
MARKET A tough economic climate is likely to eat into
marketing spend, so expect significantly less
than Universal McCann's forecast of 5 per
cent growth or Initiative's 3.9 per cent.
COUNTRY AD Its share of global adspend has fallen by more
COMPARISONS than 2 per cent (from 48.3 to 46.2 per cent)
since 2000 as Asia grows in prominence, and
will surely fall again this year.
TELEVISION Cable will continue to grow at the expense of
network TV. PVR penetration is expected to
rise to 12 per cent by the end of this year, while
more big advertisers are shifting their budgets
out of TV and into non-traditional media.
INTERNET By the end of this year, online adspend will
almost equal that of network TV. By 2010,
it will have doubled to $19 billion.
POLITICS Differences of opinion are expected to lead to
AND MEDIA further fragmentation of audiences as TV
stations grow tired of being held to content
standards that do not apply to cable and
satellite broadcasters.